2.1.4 Planning

• Purpose of a Business Plan

  -Show lenders that the firm is profitable and can repay loans

  -Attract investors

  -To give owners direction and set targets and goals

  -Identify any problems early on

  -To monitor their efficiency in meeting goals
• Business Plan

  A document outlining plans to make a successful business by realising it's objectives
• Features of a Business Plan

  -Cash flow forecast to show interest can be paid

  -Name of the business

  -4Ps of marketing

  -HR

  -Costs and suppliers

  -Premises and how it will be financed

  -Financial information: revenue, costs, profits
• Benefits of a Business Plan

  -Negotiate a lower interest rate/ % of equity to VCs

  -Monitor if they are meeting goals
• Cash Flow Forecast

  Predicts the inflows and outflows of cash in a given time
• Uses of Cash Flow Forecasts

  -Monitor cash inflows and outflows to arrange suitable finance for shortages eg. overdraft

  -Helps secure a better deal eg. lower rate loan
• Limitations of a Cash Flow Forecast

  -12 months is a very short term to make any financial decisions longer-term finance may be needed

  -Actual sales or expenses may be higher/lower

  -Only about cash available to pay short-term debts

  -Needs a balance sheet and a profit loss statement

  -Very risky to rely on the forecast alone for decisions
• Ways to Improve Cash Flow

  -Leasing rather than buying equipment

  -Renting rather than buying

  -Postponing spending

  -Quickly selling goods

  -Keeping stocks of raw materials to a minimum
• Just-in-time

  Ordering stock so that it arrives just before it is needed